Investing with Your Conscience, and Your Brain

It’s becoming popular – and profitable – for people to seek out investments based upon their own personal values. Known as “socially responsible investing” (SRI), this movement started in earnest during the 1970s. By the early 1980s, there was a small group of SRI mutual funds that "screened" companies based upon their environmental policies, weapons production, child labor practices … and soon, many other issues began to appear.

Although SRI funds use varying criteria when deciding which companies can be included in their portfolios, they tend to be very clear about which ones they exclude. For example, companies that manufacture tobacco products and weapons routinely get a thumbs-down. Also typically avoided are companies that are involved with nuclear power plants, alcoholic beverages, or gambling products and services. Some funds also avoid companies that use animal testing or have business dealings that support repressive governments.

SRI mutual funds aren't the only way to invest with your conscience in mind. You could choose individual stocks based upon your own criteria. Or, you could make deposits in banks and credit unions that invest in your community, low-income areas, and/or developing nations. Also, you can become active in shareholder advocacy, by attending annual meetings and voting for proxy resolutions on social issues.

SRI gained real clout when investors opposed to South Africa's apartheid policies pressed companies to stop doing business with South Africa during the 1980s and early 1990s. This was a major factor in bringing an end to apartheid. Since then, SRI has become a very big, profitable business.

According to the Social Investment Forum , a trade association that promotes socially and environmentally responsible investing and takes a hard look at the state of SRI every two years, $2.29 trillion is currently being invested in a socially responsible way – by individuals as well as by institutional investors, corporations, and nonprofit organizations. In fact, during the last decade, SRI assets grew faster than investments overall.
 
The rise in value for SRI mutual funds has been particularly dramatic  – from $12 billion in 1995 to $178.7 billion in 2005. This far outpaces the overall growth of mutual funds. The number of SRI funds has grown from 55 in 1995 to 175 in 1999 to over 220 today.

During the past few years, many of these funds have gotten top marks as investment vehicles by rating services like Morningstar . But as with any responsible investing, you need to do research before jumping in. Fortunately, there is now a wealth of information available on SRI options. Here are some particularly useful resources:

• The Social Investment Forum . Start here for more on SRI funds. The site also provides information on various funds' performance and screening policies. You'll also find leads to the major SRI funds as well as research on SRIs and information on community investing.
• SocialFunds.com . This site offers “Investing in Socially Responsible Mutual Funds,” a 20-page guide that you can download. They make it easy to read about many SRI funds and to order prospectuses. It’s also a good place to turn for social investment news.
• GreenMoney Journal and Green Life cover a wide range of SRI topics with an emphasis on environmentally sound investing.
• If you want to do your research “the old-fashioned way,” by curling up with a good book, read Investing with Your Values: Making Money and Making a Difference by Hal Brill, Jack A. Brill, and Cliff Feigenbaum (New Society Publishers, 2000).

Something for Everyone
For some investors, the typical SRI screens are too liberal and may not match their particular concerns, such as a desire to steer clear of companies that create pornography or support abortion rights. If that describes you, check out Austin Pryor's financial newsletter and Web site, Sound Mind Investing , which are both written from a religious perspective.

Conservative Christians are not alone! There are funds for Catholics, Muslims, Jews, Unitarians, Mennonites, etc. Other funds focus on gay rights, women’s issues, open workplace policies, alternative energy, and/or diversity.

Some SRI index funds invest in selected S&P 500 companies. But index funds aren’t your only SRI fund alternative. Your options range from conservative money market to aggressive international equity funds and to bond funds of varying levels of risk.

What to Watch Out for with SRIs
Before you invest in anything, it pays to take a look at management, investment strategy, cost, and performance. For an SRI, you need to make sure the investment is truly in synch with your values. For example, with a mutual fund, make sure that the criteria used to screen investments is right for you. Also, take a look at the individual stocks in the fund’s portfolio. Are they companies you want to support?

Finally, remember what they always say:

• “Past performance is no guarantee of future results.”
• What goes up sometimes comes down. So make sure you can accept the level of risk before you make any investment.
• Don’t put all your eggs in one basket.

When There’s No Socially Responsible Fund in Your Retirement Plan
Increasingly, employers are offering socially responsible funds in their 401(k) and other retirement plans. If your company doesn’t seem to be on this track, talk with your benefits manager. You may discover that your plan already includes a social fund that you’re not aware of, or it could be getting ready to make one available.

If not, consider enlisting the benefits manager’s help to make it happen. You could point to the fact that the majority of employees who have a socially responsible fund among their investment choices take advantage of the option. Maybe it would help to poll your coworkers, to show that they really want this choice, too. Even if the powers that be aren’t ready to add another fund to the mix, they might consider a social fund the next time investment options are reviewed.

Let Your Money Matter
It’s never been easier to align your investments and your ideals. Now, with just a few clicks and some reading, you’ll be able to find an SRI that will make you money while supporting your values.

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